Nespresso case analysis for a Channel Management course within IE Business School's Master in International Management marketing specialization. Delivered to Professor Fernando Cortinas and Professor Maria Teresa Aranzabal Harreguy.
2. Table of Contents
1. The brand
2. Coffee Consumption in the US
3. Nespresso vs. Competitors in the US
4. Nespresso’s Problem in the US
5. Distribution: Altneratives & Recommendation
6. Advertising: Altneratives & Recommendation
7. Additional Recommendations
4. To cosmopolitan men and women who
seek exclusivity, enjoy the finer things in
life, and take pleasure in little everyday
indulgences,
is the brand of luxury home brewed
coffee which makes consumers feel like
they are having the perfect cup of coffee
at home every single time because of its
superior quality, elegant design, and
unmatched in-store experience.
Positioning Statement
5. Product
• The “Armani of Coffee”
• High quality home-brewed
espresso
• Machines: designed to look good,
compact in size, easy to operate
• Capsules: colorful with different
coffee varieties (“grand cru”), +
limited edition varieties
• First time Nespresso buyers
instantly become club members:
relationship with brand
7. Place
• 300+ Flagship boutiques in
fashionable areas of major cities
‣ Design & premium positioning
reflected in boutiques
‣ Boutiques offer entire experience for
customers (aesthetics, excellent
service...)
• Select department stores
• Online boutique: 180,000 visitors
daily
➡Capsules could only be purchased
in flagship stores & online
8. Promotion
• All communications focused on
brand’s luxury positioning &
quality
‣ “the perfect cup of coffee, time after
time, cup after cup”
• Print ads in premium magazines,
sponsor of prestigious events
• TV ads in EU only; no TV ads in
the USA
➡Still, consumers more likely to buy
a machine after they had tested it
10. Coffee Consumption
in the US: pre 1990s
• Americans drank instant or
filtered coffee at home
• Purchased at supermarkets
• Diners & restaurants served only
filtered coffee
➡ Coffee was a commodity
11. Coffee Consumption
in the US: post 1990s
• Starbucks changed US coffee
consumption, creating a cafe
culture which never existed
• Starbucks elevated coffee from a
commodity to an everyday
luxury
• Americans acquired taste for
higher quality coffee
• Starbucks opened US market for
other premium coffee brands
12. Tastes of American
Coffee Drinkers
• Prefer milk-based & sweeter
beverages (lattes, mochas...)
➡ Nespresso only makes espresso!
Consumers can only add fresh
steamed milk themselves
13. Home Consumption
of Coffee in the US
• Home coffee consumption surged
during 2008 crisis
➡ Americans shied away from cafes
and moved to home consumption
➡ Demand for portioned home-brewed
coffee increased
• Capsule coffee market increased
66.1% (2011)
➡ This created shift in competitive
landscape
15. Nespresso in the US
• First flagship opened in 2004
• Department stores that were
trusted brands for US consumers
➡ Bloomingdale’s, Macy’s...
• Reliance on organic growth
through retail channel
➡ Advertising limited to infrequent
print ads in regional magazines
19. US Capsule Market:
Competitive Landscape
• Nespresso’s competitors increased
investment to capture more market
➡ Keurig, Lavazza, Flavia, Tassimo
• Booming market attracted new
entrants
➡ Starbucks introduced Verisimo,
single serve espresso machine
20. US Capsule Market:
Competitive Landscape
• Nespresso lost patent
➡ Cheaper capsules compatible with
Nespresso machine
• Lower quality, simpler, cheaper
machines that could use powdered/
condensed milk
➡ More convenient for US consumers
who prefer milk-based coffee
21. To be Addressed
1.Should Nespresso find new
channels through which to
distribute? What criteria is most
important?
2.Should Nespresso increase
advertising budget and introduce
TV commercials?
23. Option 1: Expand to
Premium Supermarkets
• Convenience: no need to go to
flagship boutiques or select
department stores
• Potential market growth: exposure to
more consumers alongside competitors
PROs:
CONs:
• Damages brand image: no
exclusivity, no premium image, no
service, no “Nespresso experience”
• No loyalty creation with customers
(Nespresso club membership)
• Price will seem too high vis a vis
competitors in supermarket setting
24. Option 2: Stand Alone “Cafe Boutiques” in High End
Malls, VIP Airport Lounges, Business Centers
PROs:
• Locations that make sense with
premium brand image and right target
CONs:
• Difficult to sell Nespresso machines?
• Convenient AND exclusive
• Allows for trial & loyalty -> Consumers
more likely to buy Nespresso after trying
• Exposure to wider audience
• Experience similar but not 100% the
same as in Nespresso flagship boutique
25. Option 3: More
Boutiques & Strengthen
Online Store
• Best environment to experience the
Nespresso brand
• Strengthened online channel could
increase convenience and loyalty
PROs:
CONs:
• Boutiques still not convenient after
machine purchased: cheaper
capsules available at supermarket
• Limits number of consumers exposed
to products and brand
27. Recommendation: Stand
Alone Cafe Boutiques +
More Flagship Boutiques
• Maintains the Nespresso experience
• Maintains premium brand image
‣ aesthetics, service, quality,
exclusivity
• Stand alone boutiques encourage
trial and create more exposure to
new potential customers
• Stand alone boutiques are more
convenient locations for current
customers
‣ reduces risk that clients go to
supermarkets for other capsules
28. Recommendation:
Enhance Online
Experience
• Online optimized for CONVENIENT
+ FREE delivery: your favorite
capsules arrive at your home at the
beginning of every month
(subscription)
‣ improves “convenience” factor
currently missing from Nespresso
‣ reduces risk that clients go to
supermarkets for other capsules
• Gifts, like limited edition capsules,
with online purchases
‣ clients feel special and loyalty
increases
30. Recommendation: Go For
Advertising to create
Awareness!
• DON’T do ads to educate unfamiliar
Americans on how to use machine
‣ 30 seconds are not enough!
• DO ads that communicate high
quality and premium image of brand
‣ Change perception of Americans
taste for milk-based coffee to high
quality espresso
‣ Become the “it” brand for capsule
coffee to reduce competitor
threat
• Prints ads in premium magazines
31. Recommendation:
Sponsor Premium Events
& Luxury Stores
• Best form of advertising is getting
potential customers to try product
• Sponsor premium events and give
machine and capsules to luxury
stores, hotels, etc.
‣ Exposure to the right target
‣ Allows for trial in an exclusive
setting in line with brand image
‣ Trial increases probability of
purchase
33. Enhance Nespresso Club
Membership
• Make membership benefits so irresistible
that competitor capsules are not even an
option
‣ Free delivery online
‣ Birthday gift
‣ First to receive limited edition capsules
‣ Discounts on large quantity capsule
purchases
‣ Purchases = points = gifts
‣ Invitations to exclusive Nespresso
events
34. Increase Price of Capsules to Reflect Higher Value/Quality
0
0.275
0.55
0.825
1.1
Nespresso Keurig Verismo Senseo Tassimo
Price/Capsule (Low)
Price/Capsule (High)
Starbucks is a better well known
brand in the US + higher price will
make it seem like better value +
quality. If Nespresso is the Armani of
coffee, it must increase its price to
reflect this premium image.